Phoenix Retail Is Evolving Fast

The Phoenix retail market is rapidly evolving. While the market is somewhat bifurcated by asset class and location, like the rest of the country, the new creative and experiential stores are also coming to the market, showing a clear evolution and modernization.

“The Phoenix retail market encompasses a wide range of property categories, and some are doing much better than others. Strip malls and neighborhood centers are seeing high vacancy rates,” Matt Milinovich, principal at Avison Young Phoenix, tells GlobeSt.com. “Single-tenant and centers with fitness and entertainment tenants as well as local, urban restaurant venues are surging. The local market is evolving fast: we are seeing Phoenix retailers right-sizing stores and exploring new, creative, experiential store and restaurant environments.”

The evolution of the retail market has translated into healthy leasing activity and new development. “Avison Young’s quarter three Phoenix research report shows that 1.1 million square feet of retail space has been delivered in the Phoenix MSA in the past 12 months, with net absorption for the third quarter at 272,386 square feet,” says Milinovich. “The average asking triple net rental rate was $14.93 per square foot —still 20% below pre-recession rates.”

While the retail development pipeline is activity, it is also below pre-recession construction levels, which has created a healthier market. “New construction in Phoenix has fallen sharply from pre-recession highs of nearly 30 million square feet added in 2006-2008. Developers will deliver just 1.2 million square feet of retail space this year. Top retail construction projects include “furniture, fitness, and fun,” says Milinovich.”

The evolution of the market and new demand from more progressive retailers has helped to ease any loss from store closures. “Store closures by retailers such as Forever 21, Bed, Bath & Beyond, and Payless Shoes are being offset by expansions and robust demand from fitness retailers, as well as entertainment retail centers like the 50,000-square-foot prelease for Urban Air Adventure Park at San Tan Pavilions in Gilbert,” says Milinovich. “The greatest amount of leasing activity in Q3 was in restaurant, car wash, fitness, entertainment, and medical spaces, and we predict this to continue. Pad sites are also particularly popular with tenants seeking high-profile locations in retail centers, frequently paying top dollar for premium visibility.”